Yang on Motorola deal: 'Don't be scared by' by its $1 billion a year losses
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BARCELONA, Spain - Lenovo, which is buying Motorola Mobility from Google for $2.9 billion, plans to make the phonemaker profitable within four to six quarters without eliminating jobs, according to Chief Executive Officer Yang Yuanqing.
“Don’t be scared by the $1 billion-a-year loss,” Yang, 49, said in an interview at the Mobile World Congress in Barcelona yesterday. “We will improve that even from day one. Google is very good at software, ecosystems and services. But we are stronger in the manufacturing of devices.”
Yang has bet he can use the purchases of Motorola and International Business Machines Corp.’s low-end server business, for a total of $5 billion, to move beyond the shrinking personal-computer market to become a broader technology company. The acquisitions, both larger than any Yang has previously completed, will challenge his ability to absorb the new teams and find the cost savings to make the units profitable.
Motorola Mobility had operating losses of more than $1 billion last year, according to data compiled by Bloomberg. The timetable to turn around Motorola is from after the acquisition is completed, and Yang said he’s optimistic Lenovo will receive regulatory approval.
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Improved profitability will come from increased production and sales as the company targets emerging markets, Yang said. The company will also seek to reduce costs from internal communication and computing services. Motorola’s gross margins are already “pretty decent,” he said.
Lenovo shares rose for the first time in seven trading days, gaining 2.2 percent to HK$7.97 as of 10 a.m. in Hong Kong.
Lenovo on Jan. 23 announced plans to buy IBM’s low-end server business for $2.3 billion. A week later, Lenovo said it would acquire Motorola Mobility for $2.91 billion.
Shares of Lenovo have slumped 27 percent, from HK$10.96 the day before the Motorola Mobility purchase was announced, on investor concern that the unit would be a drag on the PC manufacturer’s profitability.
“People are very worried that the visibility of Lenovo as an investment is out the window,” said Alberto Moel, an analyst at Sanford C. Bernstein & Co. in Hong Kong. “We don’t know what the impact will be of these deals on the financials.”
Lenovo can “easily” cut 70 percent of the Motorola business’s operating expenses, according to estimates from Kirk Yang, an analyst at Barclays Plc in Hong Kong. Lenovo’s Yang declined to comment on that estimate.
The Motorola acquisition will create the world’s third- largest smartphone vendor with about 6 percent of the global market, trailing only Samsung Electronics Co. and Apple Inc., according to Strategy Analytics.
“We are very complementary,” Lenovo’s Yang said of the deal. “We could become a stronger player in the mobile market to challenge the top two.”
The two purchases both exceed the $1.25 billion acquisition of IBM’s PC unit in 2005, which was previously the biggest. That transaction, which came at a time when the business hadn’t made a profit for 3 1/2 years, helped Yang transform his company into the world’s biggest PC maker, from No. 8 before the acquisition.
Yang is expanding Lenovo’s product portfolio after global PC shipments fell last year. The 10 percent decline in shipments in 2013 was the worst ever, researcher Gartner Inc. said last month.
“A company should focus on not just the short-term performance, but also long-term sustainable growth,” Yang said. “If we only focus on PCs, one to two years later we cannot further grow. So we must find a new area, so we can help our shareholders make more money, and see more growth. So I think our choice is the right choice.”
[Lenovo operates is executive headquarters in Morrisville, N.C.]
[LENOVO ARCHIVE: Check out eight years of Lenovo stories as reported in WRALTechWire.]
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